Prepaid Debit Card

Credit Cards Have Some Benefits

When an item is purchased with a credit card, buyers have additional protection. For example, a new computer arrives with a flawed system. If the seller refuses to replace it, the issuing bank often offers safeguards for the consumer. Cardholders can dispute or stop payment of the charge. Buyers have no such remedy when they purchase items through a prepaid debit card. In essence, there is no recourse once the card is debited.

Prepaid Debit Card Advantages

Debit cards eliminate concerns about Identity Theft. They offer the freedom of not carrying cash. Prepaid debit cards are a terrific alternative for those who have:

• No bank account
• No credit history
• Poor credit record
• Difficulty managing money
• No time for a lengthy application process

Credit History

It is difficult to obtain a credit card without a payment history. On the other hand, it is impossible to create a credit history without a chronicle of monthly financial payments. While many debit card issuers do not report transactions to the major credit bureaus, some do. If the cardholder is planning to establish a credit bureau file or improve a poor credit record, it is important to choose an issuer that does report prudent card usage to the credit bureaus.

Money Management

Impulsive shopping sprees are the downfall of those who have trouble managing their money. Simply put, the appeal of buying something now without worrying about paying for it until later is too overwhelming. With a prepaid debit card, the spending limit is firmly established. Unlike revolving bank cards, your purchasing capabilities are limited to the amount of money you have deposited with the card issuer.

Frequently Used Terms

Below are a list of frequently used terms and fees that may be deducted from the debit card’s balance. Not all issuing banks charge for each of these items. One might offer free card activation and customer service. Another will not charge for balance inquiries or customer service. The important point is that these fees can whittle away at the amount of money available for purchases.

Convenience Fee

A convenience fee is assessed by merchants each time a debit card is used. It is meant to offset the bank’s cost for processing a debit card transaction. An average convenience fee is $.75.

Loading/Reloading/Value Loading

Loading, reloading, and value loading are terms used to describe adding funds to the prepaid debit card. Most bank issuers have minimum and maximum daily amounts.

Pin Transactions

Making a purchase often requires typing a secret pin number into a card processing machine. It is a similar process to using an ATM; although, cash does not always change hands. This method is the most secure for the cardholder; however, it is the most expensive for the bank to process. Merchants are charged a higher fee when a pin transaction takes place, and often this cost is passed on to you in the form of an on-the-spot transaction fee.

Signature Transactions

Signature transactions are similar to a credit card purchase where the bill or receipt is signed by the customer. Banks encourage this method and charge the merchants smaller fees. In addition, they often offer cardholders special bonuses and rewards for using their signature instead of their pin to make purchases. This distracts the cardholder from realizing that signature transactions are less secure, but it does save them from potentially paying the on-the-spot pin transaction fee.

Fees Can Destroy Advantages

Utilizing a prepaid debit card is not a simple, straightforward transaction. Fees and charges are assessed against the cardholder for a multitude of reasons. The amount and the justification can vary significantly among issuing banks. This makes it important to carefully study the terms of service and list of potential charges before choosing a prepaid debit card.

Below is a table identifying potential fees that may reduce the cost-effective use of a prepaid debit card.

The Prepaid Debit Cards Niche

If used wisely, these cards have benefits and advantages. Although they look like a credit card, it is better to think of them as a check. Most importantly choose the card carefully, based on your purchasing habits. Examine how it will be used. For example, a card used for day-to-day expenses requires an arrangement with low per-transaction charges.